QUESTION $1$: Master Budget $(45$ points$)$

Basket Company specializes in unique baskets. Peak sales for one of their products, the Easter basket, occur in March every year. The company has estimated the following sales for the first five months of the year for the Easter basket:

Month Expected sales in units

January $2,000$

February $3,000$

March $10,000$

April $1,000$

May $500$

The baskets are considered deluxe as they are very intricate. As such, the company can sell the baskets for $$30.$ Based on history, the company expects that $10\%$ of sales are cash. Of the credit sales, half is collected one month after sale and the remainder is collected two months after sale. Accounts receivable as at January $1$st was $$50,000$; all of which is expected to be collected in January.

Each basket requires $2$ meters of plastic. The cost per meter is $$2\mathrm{.}00.$ The company wants to ensure it always has enough unit and plastic on hand and therefore has indicated that ending inventory will be $20\%$ for the units and $10\%$ of the following month's production needs will be $20\%$ for the units and $10\%$ for plastic. The company had $1,080$ meters of plastic on hand as at January $1$st$.$

The company puts all purchases of plastic on account and pays for it the month following purchase. Purchases of plastic in December amounted to $$2,000.$

Due to the intricate design, the company uses substantially all production line workers to create the baskets. Each basket takes $1\mathrm{.}5$ hours to produce and the direct labor rate per hour is $$12\mathrm{.}00.$

The company expects to incur $$40,000$ of operating expenses each month, this includes $$5,000$ of depreciation expense. The company plans to pay cash dividends of $$3,000$ in January.

There is a minimum cash balance set by management of $$5,000$ at the end of each month. The company has access to a line of credit. Any borrowings and repayments must be made in multiples of $$1,000.$ The company is subject to a $5\%$ annual interest rate. For simplicity, assume interest is not compounded.

Assume that borrowings are made at the beginning of the month and repayments are made at the end of the month. The company started the year with $$10,000$ in the bank.

$1-$ Prepare a sales budget for the first quarter of the year. $(5$ points$)$

$2-$ Prepare a cash receipts budget for the first quarter of the year. $(5$ points$)$

$3-$ Prepare a production budget for the first quarter of the year. $(5$ points$)$

$4-$ Prepare a direct materials budget and schedule of expected cash disbursements for the first quarter of the year. $(10$ points$)$

$5-$ Prepare a direct labor budget for the first quarter of the year. $(5$ points$)$

$6-$ Prepare a cash budget for the first quarter of the year. $(7$ points$)$

$7-$ What is the account receivable balance as at March $31$st$?(2$ points$)$

$8-$ What is the account payable balance as at March $31$st$?(2$ points$)$

$9-$ What are the beginning and ending inventory of the quarter? $(4$ points$)$